Chola approves up to Rs 5,000 crore capital raise for growth

Cholamandalam Investment and Finance Company Limited has approved a proposal to raise up to Rs 5,000 crore, subject to shareholder and regulatory approvals, to support expansion in existing businesses after assets under management (AUM) rose 25% year on year to Rs 2,68,009 crore in September 2026.

Why is Chola raising up to Rs 5,000 crore?

Chola is raising capital to reinforce its balance sheet and retain capital buffers for growth across its current lending portfolio, rather than to fund a newly identified business line. Executive Chairman Vellayan Subbiah said on the October 28, 2026 earnings call that the board-approved proposal would provide flexibility to fund future opportunities while maintaining capital adequacy.

Management placed the proposal in the context of a gap of about three years since the last capital raise and its continuing review of the capital adequacy ratio (CAR). At September 2026, Chola reported a CAR of 20.62%, including Tier 1 capital of 16.02%, and total liquid assets of Rs 21,974 crore, including undrawn sanctioned credit lines. The conversion of compulsorily convertible debentures into equity had also been completed by September 2026.

When will Chola complete the proposed capital raise?

Chola expects to undertake the capital raise in the near to medium term, with timing dependent on market conditions. Subbiah said the company would complete the raise but would remain conscious of market conditions, without setting a fixed issue date or timetable.

The transcript does not disclose the instrument, issue price, investor group or tranche structure for the proposed Rs 5,000 crore raise. The timing flexibility follows second-quarter fiscal year 2027 (Q2 FY27) aggregate disbursements of Rs 35,872 crore, up 47% year on year, while AUM grew 25% to Rs 2,68,009 crore.

Which existing businesses will Chola use capital to expand?

Chola expects a significant part of future growth to come from scaling vehicle finance, secured small and medium enterprise (SME) finance and consumer loans already in its portfolio. Management said it continues to evaluate opportunities but considers its existing business portfolio comprehensive, highlighting gold loans, consumer durables and digital lending as growth areas.

Vehicle finance remained Chola’s largest business, with Q2 FY27 disbursements rising 31% year on year to Rs 17,801 crore and AUM increasing 21% to Rs 1,29,787 crore. Secured SME finance disbursed Rs 9,345 crore, up 42%, and reported AUM of Rs 72,356 crore, up 27%. Loan against property (LAP) accounted for Rs 57,447 crore of this AUM, while SME AUM was Rs 10,943 crore.

Consumer loans recorded the fastest disbursement growth, rising 103% year on year to Rs 8,726 crore, compared with 42% for secured SME finance and 31% for vehicle finance. Consumer-loan AUM reached Rs 45,902 crore, including home loans of Rs 25,240 crore, CSEL of Rs 17,216 crore and gold loans of Rs 3,446 crore. Gold-loan disbursements grew 320%, compared with 103% for CSEL and 43% for housing loans.

How does Chola’s capital position compare with its recent growth?

Chola had a 20.62% CAR in September 2026, while management said additional capital would support growth across its three principal lending businesses. Consumer loans and secured SME finance expanded faster than total AUM, at 32% and 27% respectively, while vehicle finance grew 21% and remained the largest portfolio segment.

Portfolio indicators improved during the quarter: Gross Stage 3 declined to 3.25% in September 2026 from 3.29% in June 2026, while gross non-performing assets under Reserve Bank of India norms declined to 4.44% from 4.50%. Chola said credit cost reduced by 37 basis points and pre-tax return on assets expanded by 40 basis points year on year. Return on equity rose to 19.4% from 18.1% a year earlier.

Management did not raise its full-year guidance despite reaching its objective of about 25% growth in the first half of FY27. Managing Director and Chief Executive Officer Ravindra Kundu said the original target was around 25% growth with net credit costs of about 1.4% for the full year. He added that the third and fourth quarters have historically been stronger than the first and second quarters.

What could determine how Chola deploys the additional capital?

Chola’s capital capacity is intended to support businesses whose growth rates differ by product, distribution and reporting mechanics. Management said CSEL includes unsecured business loans, personal loans, professional loans, consumer durables and digital lending, and that these businesses were delivering combined pre-tax return on assets of around 3.6%.

Management said the combined CSEL businesses could sustainably deliver pre-tax return on assets above 4% over the medium term as net credit costs reduce and operating expenses moderate. It did not disclose segment-level financials or set a date for separate disclosures, but said the businesses would be presented independently once they attained meaningful scale.

For home loans and LAP, management cautioned that quarterly disbursement comparisons were affected by a technical alignment of reporting with asset recognition. Some home-loan, LAP, SME and other disbursements were not reflected in the preceding quarter, while second-quarter performance was only marginally better than the first quarter, according to Kundu. He said the year-on-year comparison was also helped by a lower second-quarter base in the prior year.

Conclusion

The proposed up-to-Rs 5,000 crore raise is intended to preserve Chola’s capital flexibility while its lending portfolio expands across existing businesses. AUM reached Rs 2,68,009 crore in September 2026, with consumer-loan disbursements rising 103% in Q2 FY27 and vehicle finance remaining the largest AUM segment at Rs 1,29,787 crore.

Next, investors can watch market conditions affecting the issue’s timing, shareholder and regulatory approvals, and progress against management’s full-year objectives of around 25% growth and about 1.4% net credit costs. Management also expects the third and fourth quarters to be seasonally stronger, while it has not set a date for separate disclosure of the CSEL businesses.